Review of Finance Vol. 26 No. 2 2022
Third-Party Credit Guarantees and the Cost of Debt: Evidence from Corporate Loans
Abstract
Using a comprehensive dataset collected by the Federal Reserve, I find that over one-third of corporate loans issued by US banks are fully guaranteed by legal entities separate from borrowing firms. Using an empirical strategy that accounts for time-varying firm and lender effects, I find that the existence of a third-party credit guarantee is negatively related to loan risk, loan rate, and loan delinquency. Third-party credit guarantees alleviate the effect of collateral constraints in credit market. Firms (particularly smaller firms) that experience a negative shock to their asset values are less likely to use collateral and more likely to use credit guarantees in new borrowings.
- DOI
- 10.1093/rof/rfab012
- Volume
- 26
- Issue
- 2
- Pages
- 287-317
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref